RAINBOW VANIJYA PVT LTD.,NEW DELHI vs. ACIT, KOLKATA

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ITA 1891/KOL/2025Status: DisposedITAT Kolkata31 December 2025AY 2020-2112 pages
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What did the Tribunal hold?

The Tribunal held that the CIT(A) exceeded his jurisdiction by enhancing the assessment by ₹66,12,43,517/- on account of alleged bogus purchases, as this was beyond the subject matter of the appeal and on a different head. The Tribunal found the CIT(A)'s enhancement to be unsustainable as it was made without bringing any material on record or conducting further enquiry, and by relying on a distinguishable case (PCIT Vs. Konak Impex Ltd.). The Tribunal noted that in the Konak Impex case, the assessee was non-cooperative, whereas the present assessee was fully compliant. The Tribunal also observed that the AO had not rejected the books of account under section 145(3) and had not established any nexus between the assessee and alleged unaccounted purchases. The Tribunal referred to a co-ordinate bench decision in LS Contracts Pvt. Ltd. vs. DCIT, which held that purchases supported by e-way bills cannot be treated as non-genuine. Given that the e-way bills in the present case showed direct delivery of goods to customers, the Tribunal concluded that the purchases were not bogus. The Tribunal directed the AO to estimate the profit element from purchases not made by way of e-way bill @ 6%, subject to verification, but ultimately deleted the addition made by the AO and the enhancement by the CIT(A), allowing both issues raised by the assessee. The Tribunal stated that the AO was not justified in making an addition without rejecting books of account and establishing a nexus, and that the CIT(A) enhancement was not tenable without further material or enquiry. The Tribunal found the addition made by the AO uncalled for and unsustainable as it was an estimation without rejecting books of account, and the enhancement by the CIT(A) was also not tenable.

What were the facts?

The assessee, Rainbow Vanijya Pvt. Ltd., filed its return for AY 2020-21 declaring a loss. The case was selected for scrutiny due to high liabilities compared to low income, identification of high-risk billers, and substantial investments/advances. The Assessing Officer (AO) initially proposed an addition of ₹64,47,79,406/- for bogus purchases from three parties. Subsequently, the AO alleged the assessee was an accommodation entry provider and proposed adding 1% commission on purchases, sales, and loans/advances. The AO ultimately made an addition of ₹1,33,61,982/- at 1% of the aggregate of these items. The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], who enhanced the assessment by ₹66,12,43,517/- by adding the entire purchases, holding them to be accommodation entries. The assessee is now appealing this order.

What were the issues?

1. Whether the CIT(A) exceeded his jurisdiction by enhancing the assessment by ₹66,12,43,517/- on account of alleged bogus purchases, when the AO's addition was ₹1,33,61,982/- on account of commission, and the enhancement was on a different head/source than the subject matter of appeal. - Assessee's contention: The CIT(A) enhanced the assessment beyond the scope of the appeal and on a different basis than the AO's addition. - Revenue's contention: Not recorded. 2. Whether the CIT(A) was justified in confirming the addition of ₹1,33,61,982/- made by the AO as commission received on accommodation entries (1% of purchases/sales/advances). - Assessee's contention: The assessee is a 'Pacca Arahitya' engaged in business, maintaining audited books of accounts and filing GST returns. Purchases aggregating ₹66,12,48,517/- were made and corresponding sales of ₹66,79,51,656/- were effected, with a profit of approximately 1%. Goods were directly delivered to customers, supported by e-way bills, purchase bills, and transport documents. The AO acknowledged goods were shipped to third parties. The AO and CIT(A) did not treat sales or loans as bogus. The AO's addition was based on surmises and presumptions without independent enquiry or rejecting books of account. The CIT(A)'s reliance on PCIT Vs. Konak Impex (India) Ltd. is distinguishable as the assessee in that case was non-cooperative, unlike the present assessee who provided all details. The assessee also provided confirmations of accounts and debtor ledgers. The addition was made without rejecting books of account under section 145(3) or establishing a nexus with alleged unaccounted purchases. - Revenue's contention: Not recorded.

Which sections of the Income-tax Act were involved?

Section 143(2),Section 142(1),Section 143(3),Section 144B,Section 44AB,Section 145(3),Section 69C

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Income Tax Appellate Tribunal, “D” BENCH, KOLKATA

Before: SHRI RAJESH KUMAR, AM & SHRI PRADIP KUMAR CHOUBEY, JM

This is an appeal preferred by the assessee against the order of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 30.07.2025 for the AY 2020-21.

2. There are two effective issues raised in the various grounds of appeal, which are as under:-

i. The assessee has challenged the order of ld. CIT (A) enhancing the assessment by ₹66,12,43,527/- on account of alleged bogus purchases without doubting the sales recorded the books of accounts and thus, the ld. CIT (A) has exceeded the jurisdiction since, the addition made by the ld. AO was ₹1,33,61,981/- in respect of commission earned out of books of accounts and the ii. The second issue raised by the assessee is against the order of ld. CIT (A) confirming the addition of ₹1,33,61,982/- as made by the ld. AO on account of alleged commission received on account of transactions in the nature of accommodation entries being 1% of purchases/ sales and advances during the year.

3.

So far as the first issue is concerned, the facts in brief are that the assessee filed the return of income on 24.03.2021, declaring loss of ₹1,97,88,455/-. The case of the assessee was selected for scrutiny and notice u/s 143(2) of the Act was issued on 29.06.2021, which was duly served upon the assessee. There were three reasons for selection of security as per the said notice, which are as under:-

i. Assessee has shown high liabilities in balance sheet as compared to low income, which required verification. ii. The case of the beneficiaries has been identified on the basis of date of high-risk billers received from CBIC, which requires verification. iii. The assessee has disclosed substantial amounts of investments and advances and loans in the balance sheet.

2.

Subsequently, notice u/s 142(1) of the Act was issued on 18.11.2021, which was duly complied with by the assessee on 10.12.2021, on 16.12.2021 and on 17.03.2022. Thereafter, after taking into account the evidences/ replies by the assessee, the ld. AO issued show cause notice on 25.08.2022, giving show cause as to why an addition of

3. The assessee preferred an appeal before the ld. CIT (A), however, the ld. CIT (A) enhanced the assessment by an amount of ₹66,12,43,517/- by making the addition of entire purchases on the ground that assessee has taken accommodation entries of the said amount. Now, the assessee is in appeal before us.

3.1. The ld. AR vehemently submitted before us that the assessee is engaged in the business of steel and other items and has been maintained books of accounts in regular course of business which are duly audited under the companies Act as well as u/s 44AB of the Act. the ld. AR also submitted that the assessee had also filed the required GST return as per GST law. The ld. AR submitted that the assessee has made purchases aggregating to ₹66,12,48,517/- from five parties and effected corresponding sales of ₹66,79,51,656/- to ten parties. The ld. AR submitted that the assessee earned profit of

4.

The ld. AR submitted that the ld. AO as well as the ld. CIT (A) did not treat the sales as well as the loans given to be bogus and also accepted the sales to be genuine. Therefore, how the addition can be made at the rate of 1% of aggregate of purchases, sales and loans & advances by the ld. Assessing Officer. Similarly, the ld. AR submitted that the ld. CIT (A) has added the entire purchases without doubting and disbelieving the corresponding sales which is very ridiculous and unsustainable when the books of accounts of the assessee are audited u/s 44AB of the Act. The ld. AR submitted that the assessee has been doing its business in the earlier as well as in the subsequent years and this is for the first time that addition on this count has not been made and enhanced by the ld. Commissioner of Income-tax (Appeals).

5.

The ld. AR submitted that the ld. AO has not done any independent enquiry to establish as to how the assessee’s transaction of purchases/ sales and loans were not genuine on the basis of material collected by him. The documents comprising conformations, purchase invoices, e-way bills, transport documents, GSTR-1, GSTR-3B and

6.

So far as the addition of 1% on purchases/ sales are concerned, the ld. AR submitted that the same is not sustainable as the ld. AO has not rejected the books of accounts and without rejection how the books could be disbelieved which were audited under the Companies Act as well as under Section 44Ab of the Act. In defense of his argument the ld. AR relied on the decision of Hon'ble Delhi High Court in case of PCIT Vs. Forum Sales Pvt. Ltd. in & 863/2019 and the decision of the co-ordinate bench of Kolkata in case of M/S Vista Tie Up Pvt Ltd. ITA 2091/KOL/2025. Therefore, the ld. counsel prayed that the addition made at the rate of 1% is wrong and cannot be sustained.

7.

So far as the enhancement of income by ld CIT(A) is concerned, the ld. AR argued that the same is bad in law as the decision of the Hon'ble Bombay High Court in case of PCIT Vs. Konak Impex (India) Ltd. (supra), which is the very basis of ld. CIT(A) decision ,is not applicable to the assessee’s facts. Finally, the ld. AR prayed that the addition made by the ld. CIT (A) may kindly deleted by quashing the appellate order and directing the ld. AO as well to delete the addition.

8.

The ld. DR on the other hand relied heavily on the orders of the authorities below by submitting that the assessee is a accommodation entry provider and submitted that the ld. CIT (A) besides sustaining the addition made by the ld. AO correctly enhanced the addition. The ld. AR submitted that the assessee is part of an organized racket operating in the market for providing accommodation entries and therefore, the ground raised by the assessee may kindly be dismissed.

9.

After hearing the rival contentions and perusing the materials available on record, we find that the assessee is a ‘Pacca Arahitya’ and is engaged in purchase and sale of steel and other items, recording the transactions as its purchases/ sales in the books of account maintained. The assessee is directly supplying the material from sellers to buyers and also directly arranging the payments/remittances from buyers to the sellers/suppliers and in the process the assessee is charging profit at the rate of 1% in consideration. The books of accounts of the assessee were audited under the Companies Act as well as u/s 44AB of the Act. The assessee was duly maintaining the stock register as well as other records in the ordinary course. We note that during the assessment proceedings, furnished before the ld. AO the bills of purchase, sales invoices, e-way bills, other transport documents etc. and the ld. AO has accepted that assessee has genuinely shipped the materials to third parties, however, made addition at the rate of 1% of total of purchases/ “29 Admittedly, the addition of income as discussed in questions (B), (C) and (D) on estimate basis has been done without rejecting the books of account. In view of the aforesaid, we find that no substantial question of law arises in the present appeals." Further, the Court in the aforesaid case also held that "any pick and choose method of rejecting certain entries from the books of account while accepting other, without an appropriate justification, is arbitrary and may lead to an incomplete, unreasonable and erroneous computation of income of an assessee."”

10.

Similarly, the co-ordinate Bench has decided the issue in favour of the assessee by holding that the addition cannot be made on estimation basis without rejecting the books of account in the case of vista Tie Up Pvt. Ltd. Vs. ITO in wherein the co-ordinate bench has held as under:-

“6. We have carefully considered the rival submissions, examined the record, and perused the judicial precedents cited. The addition of ₹61,49,041/- has been made solely on the basis of information emanating from seized documents found in the case of M/s J.M. Jain LLP, which allegedly contained entries of PJ Garments. It is undisputed that the said documents were not seized from the assessee’s premises and were never provided to the assessee for rebuttal. The law is well settled that additions cannot be made on the basis of unverified third-party material. In ACIT v. Ms. Lata Mangeshkar (97 ITR 696, Bom), the Hon’ble High Court held that tax authorities cannot make additions merely relying upon third-party documents or statements without independent corroboration. Suspicion, however strong, cannot replace evidence. In the

12.

So far as the enhancement of addition is concerned, we find that the ld. CIT (A) without bringing any material on record or doing any further enquiry added the entire purchases by relying on the decision of Hon'ble Bombay High Court in case of PCIT Vs. Konak Impex Ltd.v(Supra). We have perused the above decision of the Hon'ble Bombay High Court and find that the said decision is distinguishable on facts. We observe that in the case before the Hon'ble Bombay High Court, the respondent assessee has not made any “9. Ax could be seen from the above for the AY 2019-20 the assessee purchased cement worth Rs. 1.61.71.338/- from R.R. Associates and these purchases were said to have been procured byway of E-way bill. If the Assessee had made purchases on E- way Bill the movement of goods cannot be doubted and thus the purchases to that extent cannot be treated as non genuine. Similarly, during the AY 2020-21 the assessee purchased cement worth Rs.77,43.750/- from RK & Company & RR Associates by E-way bill which shows that the assessee procured cement from these parties and to that extent cannot be treated as non genuine. Therefore, we are of the view that wherever the assessee had procured the materials by way of Eway bill such materials cannot be treated as non genuine and the materials procured other than E- way bill for these two assessment years can he considered as unproved purchases and certain percentage of profit element should be considered for the purpose of the addition since there is no dispute that the sales were already considered for taxation.

14.

In the result, the appeal of the assessee is allowed.

Order pronounced in the open court on 31.12.2025.

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